Bunfight over who will get the profits pie
After being accused of "devious, calculated and unethical behaviour" in May over its complex web of tax structures, Google will be counting time until the Organisation for Economic Co-operation and Development releases its report into profit shifting on Friday.
The report will be followed by an Australian government report, which will reflect similar recommendations, including more enforcement, greater transparency of the reporting of multinational companies and an overhaul of the international tax regime after being virtually untouched for almost 100 years.
Great emphasis is believed to have been placed on how to eliminate these so-called "stateless" companies by picking a country to collect tax. Tax minimisation by big multinational companies has become a global witch-hunt as countries have launched inquiries into the paltry amount of tax some of the big tech giants - including Apple, Google, Facebook, Amazon and Microsoft - are paying.
The scale is far bigger than most countries believed possible. According to The Economist, elaborate tax structures such as those adopted by Apple and Google have helped American companies amass an estimated $US1.9 trillion ($2 trillion) offshore, safe from the American taxman.
A US Senate inquiry into offshore profit shifting revealed that between 2009 and 2011, Microsoft saved up to $US4.5 billion in taxes by transferring certain intellectual property rights to a subsidiary in Puerto Rico.
A similar inquiry discovered Amazon paid £3.2 million ($5.3 million) in tax in Britain last year, despite making more than £4.2 billion in sales by using an elaborate "routing" of transactions through Luxembourg.
Given the dollars involved and the fact that most countries are struggling under a mountain of debt and dwindling tax revenue, it explains why Britain's Public Accounts Committee ripped into Google in May, accusing it of "unethical behaviour in deliberately manipulating the reality of your business in order to avoid paying your fair share of tax to the common good".
Australia is no exception, with Assistant Treasurer David Bradbury delivering a blistering speech last year that fingered Google and its "Double Irish Dutch Sandwich" technique that is designed to pay minimal tax. "It is not my usual practice to mention companies by name or to publicly canvass the tax position of particular taxpayers. Nor is it my normal practice to publicly discuss strategies employed to minimise corporate tax. However, I will be departing from my usual practice today as I believe there is a strong public interest in drawing attention to practices that have the potential to undermine the future sustainability of Australia's corporate tax base," Bradbury said.
He then followed it up with an increase in the ATO's budget, beefed up legislative powers and a taskforce to tackle the problem of global e-commerce. He asked Treasury to develop a scoping paper to look at potential solutions. This report, together with the OECD's, will be met with trepidation by the global tech giants not just from a tax perspective but reputation-wise.
The OECD is expected to call for increased transparency of the reporting of multinational corporations, which will bring more accountability and public scrutiny.
But the more difficult task will be overhauling international tax laws to widen the net and include "stateless" companies. It might sound simple enough given all governments want to raise more tax revenue and, politically, it is a vote winner going after greedy multinationals, but it will create winners and losers. At issue is the fact that many governments, including that of Ireland, use lower taxes as an incentive to attract investment. If reforms to international tax laws result in them losing out, it will have political and economic consequences.
The US has been a strong proponent of offshore subsidiaries using tax havens so they can reinvest the income in the company and eventually bring it back onshore, when it will be taxed.
There is little doubt that countries are missing out on billions of dollars a year in forgone income. But it is a lot more complicated than beefing up local legislation and throwing more money at enforcement. This is largely an international argument about who will get the pie.